U.S. Senate rejects temporary fix for student loan rates

WASHINGTON, July 10 (Reuters) - The U.S. Senate on Wednesdayblocked a bill that offered a temporary fix for Americanstudents facing a steep increase in loan interest rates.

Senators voted 51 to 49 not to move forward with the bill, would have frozen interest rates on federal Stafford loans forundergraduate students at 3.4 percent for a year while lawmakerswork on a long term solution. Sixty votes were needed to bringthe bill to the floor.

Republicans and Democrats agree that student loan interestrates should be kept low but disagree on how to do that.

Democrats wanted to extend the low rate for another yearwhile working on a long-term solution, but they did not winenough Republican support in the Senate for the bill to beconsidered.

Colleges start opening for the new school year next month,and students who take out new loans originated after June 30could end up paying up to $4,000 more on their loans by the timethey complete a four-year degree.

The bill would have ensured that future federal studentloans would carry a fixed 3.4 percent rate and would preventstudents who took out loans since July 1 from paying the higherrate.

"Today's failure to reach a deal on student loan rates is adisappointment," said Anne Johnson, director of Campus Progressat the Center for American Progress. "Students and familiescan't afford a hike in college costs, but that's exactly whatthey'll face this fall if the partisan back-and-forthcontinues."

The group has been leading students to Washington to presslawmakers to keep interest rates from escalating. More than 7million students will be affected by the rate increase.

Student loan debt in the United States now exceeds $1trillion and is already affecting borrowers' financial decisionssuch as purchasing homes, cars or saving for retirement.

Democratic Senator Jack Reed, who sponsored the proposalblocked by the Senate, said that if lawmakers acted swiftly on aretroactive fix the Department of Education had agreed to changeits borrowing program to keep new borrowers from paying the newhigher rate.

"Helping students is the right thing to do and a smart wayto strengthen our economy," Reed said. "But once again, while amajority of Senators voted to keep student loans affordable,some Senators used procedural tactics to block help formiddle-class families."

Congress delayed confronting the issue in 2012, an electionyear, and let the July 1 deadline arrive without acting.

Before the Senate vote, the Obama administration said itsupported the Reed bill, saying that the plan would givestudents the certainty of fixed interest rates and help makecollege affordable for needy students.

Meanwhile, senators including West Virginia Democrat JoeManchin and North Carolina Republican Richard Burr, are pushingwhat they are calling a bipartisan market-based bill.

That bill mirrors another Republican bill that passed inthe House of Representatives in May, but continues to becriticized by Democrats and has been stalled.

But Senate Majority Leader Harry Reid has said he will notallow any bill that leaves students exposed to the whims of market interest rates, which are expected to rise as the economyimproves.

Republicans have accused Democrats of seeking only atemporary patch. Democrats accuse Republicans of touting plansthat could raise the college costs and unfairly target familiesto fund the nation's deficit.